Assess The Significance Of Three Factors Which Might Limit Economic Development In The Developing Countries

Topics: Investment, Economics, Human Development Index Pages: 4 (1995 words) Published: March 19, 2015
Assess the significance of three factors which might limit economic development in the developing countries. Economic development can be defined generally as involving an improvement in economic welfare, measured using a variety of indices, such as the Human Development Index (HDI). A developing country is described as a nation with a lower standard of living, underdeveloped industrial base, and a low HDI relative to other countries. There are several factors which may have the effect of limiting economic development in such countries. Factors such as these include: primary product dependency, the savings gap and political instability.

Primary product dependency occurs where production of primary products accounts for a large proportion of a country’s GDP. This can have a particularly limiting effect on economic development when a country’s primary product is what may be classified as a “soft commodity”, that is to say, agricultural goods mainly such as wheat, rice, palm oil etc. For example, Kenya has a high dependency on tea and horticulture. This may limit economic development for several reasons. Both supply and demand for primary products tend to be elastic thus and demand or supply-side shock would cause a relatively large price change, meaning that primary products are likely to experience extreme price fluctuations. These price fluctuations will cause fluctuations in producers’ income as demand is price inelastic. Therefore, a fall in price would cause a fall in total revenue whilst an increase in price would cause a rise in total revenue of producers. These price and revenue fluctuations thus make it more difficult to plan investment and output. As a result, the revenues from exports of primary products will fluctuate in the same way as those for primary product producers, thus making it difficult for the government to plan economic development.

Furthermore, protectionism by developing countries is another downside to primary product dependency...
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